MFRI INC (Form: 10-Q, Received: 12/13/2016 11:52:58)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2016

Commission File No. 0-18370

MFRI, Inc.

(Exact name of registrant as specified in its charter)



Delaware	36-3922969
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6410 W. Howard Street, Niles, Illinois	60714
(Address of principal executive offices)	(Zip Code)

(847) 966-1000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

On December 9, 2016 , there were 7,568,946 shares of the registrant's common stock outstanding.

MFRI, Inc.

FORM 10-Q

For the fiscal quarter ended October 31, 2016

TABLE OF CONTENTS



Item		Page

Part I	Financial Information

1.	Financial Statements
	Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2016 and 2015	1
	Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended October 31, 2016 and 2015	2
	Consolidated Balance Sheets as of October 31, 2016 and January 31, 2016	3
	Consolidated Statements of Stockholders' Equity as of October 31, 2016 and January 31, 2016	4
	Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2016 and 2015	5
	Notes to Consolidated Financial Statements	6

2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14

4.	Controls and Procedures	19

Part II	Other Information
6.	Exhibits	20

Signatures		21

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

MFRI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share data)



	Three Months Ended October 31,						Nine Months Ended October 31,
	2016			2015			2016			2015
Net sales		$25,302			$46,950			$71,230			$92,374
Cost of sales	21,605			32,635			62,561			72,578
Gross profit	3,697			14,315			8,669			19,796

Operating expenses
General and administrative expenses	3,352			5,491			11,815			14,424
Selling expenses	1,382			1,303			4,236			3,951
Total operating expenses	4,734			6,794			16,051			18,375

(Loss) income from operations	(1,037		)	7,521			(7,382		)	1,421

Income from joint venture	—			408			—			524
Loss on consolidation of joint venture	—			—			(1,620		)	—

Interest expense, net	112			127			435			210
(Loss) income from continuing operations before income taxes	(1,149		)	7,802			(9,437		)	1,735

Income tax expense	2,411			1,344			1,077			897

(Loss) income from continuing operations	(3,560		)	6,458			(10,514		)	838

(Loss) income from discontinued operations, net of tax	(203		)	(344		)	906			(1,770		)

Net (loss) income		($3,763	)		$6,114			($9,608	)	($932)

Weighted average common shares outstanding
Basic	7,541			7,290			7,457			7,273
Diluted	7,541			7,367			7,457			7,273

(Loss) earnings per share from continuing operations
Basic		($0.47	)		$0.89		($1.41)			$0.12
Diluted		($0.47	)		$0.88		($1.41)			$0.12
(Loss) earnings per share from discontinued operations
Basic and diluted		($0.03	)		($0.05	)		$0.12			($0.24	)
(Loss) earnings per share
Basic	($0.50)				$0.84		($1.29)				($0.13	)
Diluted	($0.50)				$0.83		($1.29)				($0.13	)

See accompanying notes to consolidated financial statements.

Note: Earnings per share calculations could be impacted by rounding.

MFRI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(In thousands)



	Three Months Ended October 31,						Nine Months Ended October 31,
	2016			2015			2016			2015
Net (loss) income		($3,763	)		$6,114			($9,608	)		($932	)

Other comprehensive income
Foreign currency translation adjustments, net of tax	(577		)	(148		)	457			10
Interest rate swap, net of tax	—			(1		)	—			14
Unrealized gain on marketable security, net of tax	9			—			5			—
Minimum pension liability adjustment, net of tax	—			196			—			196
Other comprehensive (loss) income	(568		)	47			462			220

Comprehensive (loss) income		($4,331	)		$6,161			($9,146	)		($712	)

See accompanying notes to consolidated financial statements.

MFRI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



(In thousands except per share data)	October 31, 2016			January 31, 2016
ASSETS	Unaudited
Current assets
Cash and cash equivalents		$9,008			$16,631
Restricted cash	946			2,324
Trade accounts receivable, less allowance for doubtful accounts of $134 at October 31, 2016 and $33 at January 31, 2016	30,347			36,090
Inventories, net	14,305			15,625
Assets of discontinued operations	46			14,241
Assets held for sale	—			3,062
Cash surrender value on life insurance policies, net	1,291			3,049
Prepaid expenses and other current assets	3,201			2,397
Costs and estimated earnings in excess of billings on uncompleted contracts	2,260			2,463
Total current assets	61,404			95,882
Property, plant and equipment, net of accumulated depreciation	36,465			25,400
Other assets
Goodwill	2,476			—
Note receivable from joint venture	—			1,905
Investment in joint venture	—			9,112
Other assets	4,912			5,824
Total other assets	7,388			16,841
Total assets		$105,257			$138,123
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable		$7,548			$11,026
Accrued compensation and payroll taxes	3,386			4,274
Deferred compensation liability	1,360			6,167
Commissions and management incentives payable	1,520			2,874
Revolving line domestic	4,116			5,237
Current maturities of long-term debt	2,790			8,769
Customers' deposits	3,074			3,690
Outside commissions payable	1,946			1,295
Liabilities of discontinued operations	644			12,836
Liabilities held for sale	—			3,439
Billings in excess of costs and estimated earnings on uncompleted contracts	239			1,176
Other accrued liabilities	2,851			965
Income taxes payable	2,880			2,339
Total current liabilities	32,354			64,087
Long-term liabilities
Long-term debt, less current maturities	7,164			1,493
Deferred compensation liabilities	3,113			3,124
Deferred tax liabilities - long-term	1,674			160
Other long-term liabilities	523			231
Total long-term liabilities	12,474			5,008
Stockholders' equity
Common stock, $.01 par value, authorized 50,000 shares; 7,543 issued and outstanding at October 31, 2016 and 7,306 issued and outstanding at January 31, 2016	76			74
Additional paid-in capital	53,576			53,031
Treasury Stock, 45 shares at October 31, 2016 and at January 31, 2016	(290		)	(290		)
Retained earnings	10,585			20,193
Accumulated other comprehensive loss	(3,518		)	(3,980		)
Total stockholders' equity	60,429			69,028
Total liabilities and stockholders' equity		$105,257			$138,123

See accompanying notes to consolidated financial statements.

MFRI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited)



($ in thousands, except share data)		Additional Paid-in Capital	Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)	Total Stockholders' Equity
	Common Stock
Total stockholders' equity at January 31, 2016	$74	$53,031	$20,193				($290	)	($3,980)	$69,028

Net loss				($9,608	)					(9,608	)
Stock options exercised	—	117								117
Restricted shares vested, deferred shares converted and payroll taxes paid with shares	2	244								246
Stock-based compensation expense		184								184
Marketable security unrealized gain/loss									2	2
Foreign currency translation adjustments									448	448
Tax benefit/expense on above items									12	12
Total stockholders' equity at October 31 , 2016	$76	$53,576	$10,585			($290)			($3,518)	$60,429



Shares	2016	2015
Balances at beginning of year	7,305,925	7,290,576
Treasury stock purchased	—	(44,566	)
Shares issued	236,635	59,915
Balances at period end	7,542,560	7,305,925

See accompanying notes to consolidated financial statements.

MFRI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



(In thousands)	Nine Months Ended October 31,
	2016			2015
Operating activities
Net loss		($9,608	)		($932	)
Adjustments to reconcile net loss to net cash flows used in operating activities
Depreciation and amortization	4,258			4,425
Loss on consolidation of joint venture	1,620			—
Gain on disposal of subsidiaries	(186		)	—
Deferred tax (benefit) expense	(93		)	479
Stock-based compensation expense	184			137
Income from joint venture	—			(524		)
Cash surrender value on life insurance policies	(136		)	(2		)
(Gain) loss on disposal of fixed assets	(292		)	1
Provision on uncollectible accounts	500			476
Changes in operating assets and liabilities
Accounts receivable	14,860			(17,820		)
Inventories	4,709			(5,687		)
Costs and estimated earnings in excess of billings on uncompleted contracts	(736		)	(589		)
Accounts payable	(5,268		)	11,206
Accrued compensation and payroll taxes	(9,047		)	5,686
Customers' deposits	(1,880		)	(1,326		)
Income taxes receivable and payable	671			(98		)
Prepaid expenses and other current assets	(742		)	1,356
Other assets and liabilities	(3,614		)	(6,575		)
Net cash used in operating activities	(4,800		)	(9,787		)
Investing activities
Acquisition of interest in subsidiary, net of cash acquired	(4,672		)	—
Capital expenditures	(1,544		)	(5,971		)
Proceeds from surrender of corporate-owned life insurance policies	1,894			—
Receipts on loan from joint venture	—			1,890
Proceeds from sales of property and equipment	13,962			—
Net cash provided by (used in) investing activities	9,640			(4,081		)
Financing activities
Proceeds from revolving lines	32,908			79,175
Proceeds from debt	6,048			783
Proceeds from borrowing against life insurance policies	—			1,916
Payments of debt on revolving lines of credit	(39,807		)	(63,177		)
Payments of other debt	(10,077		)	(1,699		)
Payments of borrowing against life insurance policies	—			(1,916		)
Decrease in drafts payable	(184		)	(122		)
Payments on capitalized lease obligations	(1,429		)	(659		)
Payments for repurchase of common stock	—			(290		)
Stock options exercised and restricted shares issued	363			(15		)
Net cash (used in) provided by financing activities	(12,178		)	13,996
Effect of exchange rate changes on cash and cash equivalents	(285		)	246
Net (decrease) increase in cash and cash equivalents	(7,623		)	374
Cash and cash equivalents - beginning of period	16,631			10,508
Cash and cash equivalents - end of period		$9,008			$10,882
Supplemental cash flow information
Interest paid		$605			$836
Income taxes paid	1,281			849
Fixed assets acquired under capital leases	—			1,215
Funds held in escrow related to the sale of Filtration assets	502			—

See accompanying notes to consolidated financial statements.

MFRI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2016

(Tabular amounts presented in thousands, except per share amounts)

Basis of presentation. The interim consolidated financial statements of MFRI, Inc. and subsidiaries ("MFRI," "Company," or "Registrant") are unaudited, but include all adjustments which the Company's management considers necessary to present fairly the financial position and results of operations for the periods presented. These adjustments consist of normal recurring adjustments. Information and footnote disclosures have been omitted pursuant to Securities and Exchange Commission ("SEC") rules and regulations. The consolidated balance sheet as of January 31, 2016 is derived from the audited consolidated balance sheet as of that date. The results of operations for any interim period are not necessarily indicative of future or annual results. Interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. The Company's fiscal year ends on January 31. Years and balances described as 2016 and 2015 are for the nine months ended October 31, 2016 and 2015 , respectively.

Business segment reporting. As of January 31, 2016, MFRI is engaged in the manufacture and sale of products in one segment: Piping Systems. As described below, prior to January 29, 2016, the Company was also engaged in the manufacture and sale of products in the Filtration Products segment. Piping Systems engineers, designs, manufactures and sells specialty piping, leak detection and location systems . This segment's specialty piping systems include (i) industrial and secondary containment piping systems for transporting chemicals, hazardous fluids and petroleum products, (ii) insulated and jacketed district heating and cooling piping systems for efficient energy distribution to multiple locations from central energy plants, and (iii) oil and gas gathering flow and long lines for oil and mineral transportation. Piping Systems' leak detection and location systems are sold with many of its piping systems and on a stand-alone basis, to monitor areas where fluid intrusion may contaminate the environment, endanger personal safety, cause a fire hazard, impair essential services or damage equipment or property.

Prior to January 29, 2016, the Company had a Filtration Products segment. This business is reported as discontinued operations in the consolidated financial statements, and the notes to consolidated financial statements have been restated to conform to the current year reporting of this business. For further information, see "Notes to Consolidated Financial Statements Note 4 Discontinued operations".

For the three months ended October 31, 2016 , one customer accounted for 17.0% of the Company's consolidated net sales, and for the three months ended October 31, 2015 , two customers accounted for 25.9% of the Company's consolidated net sales. For the nine months ended October 31, 2016 , no customer accounted for 10% of the Company's consolidated net sales, and for the nine months ended October 31, 2015 , one customer accounted for 10.3% of the Company's consolidated net sales.

At October 31, 2016 , two customers accounted for 25% of accounts receivable. Two customers accounted for 46% of accounts receivable at January 31, 2016 .



	Three Months Ended October 31,						Nine Months Ended October 31,
	2016			2015			2016			2015
Net sales
Piping Systems		$25,302			$46,950			$71,230			$92,374
Gross profit
Piping Systems		$3,697			$14,315			$8,669			$19,796
(Loss) income from operations
Piping Systems		$640			$9,721			($1,775	)		$7,470
Corporate		($1,677	)		($2,200	)	(5,607		)	(6,049		)
Total (loss) income from operations		($1,037	)		$7,521			($7,382	)		$1,421

Acquisition. MFRI entered into a purchase agreement with its joint venture partner Aegion Corporation to acquire the remaining 51% ownership of Bayou Perma-Pipe Canada, Ltd . ("BPPC"), a coating and insulation company in Camrose, Alberta , which acquisition closed on February 4, 2016 . MFRI had owned a 49% interest in BPPC since 2009, when the joint venture was formed with Aegion to serve the oil and gas industry in Western Canada.

The purchase price was $13.1 million CAD ( $9.6 million USD) in cash and debt at closing and is subject to certain post-closing adjustments. The initial accounting for this acquisition is not complete pending detailed analyses of the facts and circumstances that existed as of the acquisition date. The following table represents the preliminary allocation of the total consideration in the acquisition of BPPC:



Total purchase consideration:
Cash		$7,587
Loan payable	2,000
Purchase consideration to third party	9,587

Fair Value of 49% Previously Held Equity Interest	7,492
Total purchase consideration		$17,079

Fair value of net assets acquired:
Cash and cash equivalents		$2,915
Property and equipment	13,124
Goodwill	2,476
Net working capital	406
Other assets (liabilities) net	(1,842		)
Net assets acquired		$17,079

The acquisition has preliminarily resulted in approximately $2.5 million of goodwill. The Company incurred legal, professional and other costs related to this acquisition. These one-time costs of $0.2 million were recognized as general and administrative expenses.

In the first quarter, the Company recognized a non-cash loss of $1.6 million , which represents the difference between the pre-existing book value interest in BPPC immediately prior to the acquisition remeasured to its fair value upon the acquisition date.

Discontinued operations. On January 29, 2016 , the Company sold certain assets and liabilities of its TDC Filter business based in Bolingbrook, Illinois to the Industrial Air division of CLARCOR. On January 29, 2016, the Company also sold its Nordic Air Filtration, Denmark and Nordic Air Filtration, United Arab Emirates ("U.A.E.") businesses to Hengst Holding GmbH. The aggregated sales price of these filtration businesses was $22.0 million , including cash proceeds of $18.4 million , of which $0.5 million is held in escrow, which terminates July 2017.

In May, 2016, the Company completed the sale of its Bolingbrook Filtration manufacturing facility to a third party at a price of $7.1 million . The sale generated approximately $1.9 million in cash after expenses and mortgage payoffs.

In September 2016, the Company completed the sale of its Cicero Filtration facility to a third party at a price of $0.5 million . The sale generated approximately $0.4 million in cash after expenses.

In October 2016, the Company completed the sale of its Virginia Filtration facility to a third party at a price of $1.5 million . The sale generated approximately $1.4 million in cash after expenses.

The Filtration business segment is reported as discontinued operations in the consolidated financial statements, and the notes to consolidated financial statements have been revised to conform to the current year reporting. For discontinued operations, there was $0.6 million of tax expense for the nine months ended October 31, 2016 . Results from discontinued operations net of tax for the three and nine months ended October 31, 2016 and 2015 were as follows:



	Three Months Ended October 31,						Nine Months Ended October 31,
	2016			2015			2016		2015
Net sales		$—			$19,366			$10,467		$51,677

(Loss) gain on disposal of discontinued operations		($2,204	)		$—			$268		$—
Income (loss) from discontinued operations		$1,876			($245	)	1,216		(1,583		)
(Loss) income from discontinued operations before income taxes	(328		)	(245		)	1,484		(1,583		)
Income tax (benefit) expense	(125		)	99			578		187
(Loss) income from discontinued operations, net of tax		($203	)		($344	)		$906		($1,770	)

Components of assets and liabilities from discontinued operations consist of the following:



	October 31, 2016		January 31, 2016
Current assets
Cash and cash equivalents		$—		$5
Trade accounts receivable, net	42		5,720
Inventories, net	—		2,000
Other assets	4		60
Property, plant and equipment, net of accumulated depreciation	—		6,456
Total assets from discontinued operations		$46		$14,241
Current liabilities
Trade accounts payable, accrued expenses and other		$644		$7,514
Current maturities of long-term debt	—		5,322
Total liabilities from discontinued operations		$644		$12,836

Cash flows from discontinued operations:



	Nine Months Ended October 31,
	2016			2015
Net cash used in discontinued operating activities		($673	)		($689	)
Net cash provided by (used in) discontinued investing activities	9,606			(1,373		)
Net cash (used in) provided by discontinued financing activities	(8,933		)	1,553

Income taxes. The determination of the consolidated provision for income taxes, deferred tax assets and liabilities and related valuation allowances requires management to make judgments and estimates. As a company with subsidiaries in foreign jurisdictions, the process of calculating income taxes involves estimating current tax obligations and exposures in each jurisdiction as well as making judgments regarding the future recoverability of deferred tax assets. Income earned in the U.A.E. is not subject to local country income tax. Additionally, the relative proportion of taxable income earned domestically versus internationally can fluctuate significantly from period to period. Changes in the estimated level of annual pre-tax income, tax laws and the results of tax audits can affect the overall effective income tax rate, which impacts the level of income tax expense and net income. Judgments and estimates related to the Company's projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections.

The Company's effective tax rate ("ETR") from continuing operations for the third quarter and year-to-date was a negative 209.8% and 11.4% , respectively compared to 17.2% and 51.7% during the respective prior-year periods. The October 31, 2016 computation of the projected annual tax rate has been significantly impacted by an increase in the projected loss for the year, especially an increase in the loss attributable to the U.A.E., which receives no tax benefit due to a zero tax rate in that country. Other changes in the ETR from the prior year-to-date to the current year-to-date are due to the Canadian acquisition and the allocation of tax expense between continuing operations, other comprehensive income and discontinued operations when applying intraperiod allocation rules.

Income tax expense (or benefit) for each year is allocated to continuing operations, discontinued operations, extraordinary items, other comprehensive income, and other charges or credits recorded directly to stockholders’ equity. This allocation is commonly referred to as an intra-period tax allocation, as outlined in ASC 740, Income Taxes ("ASC 740"). When considering intra-period tax allocations, a company also should consider the accounting for income taxes in interim periods. ASC 740-20-45-7 requires that the tax effect of pretax income from continuing operations be determined without regard to the tax effects of items not included in continuing operations. This is commonly referred to as the "incremental approach", where the tax provision is generally calculated for continuing operations without regard to other items.

ASC 740 also includes an exception to the general principle of intra-period tax allocation discussed above. This exception requires that all items (e.g., extraordinary items, discontinued operations, including items charged or credited directly to other comprehensive income) be considered in determining the amount of tax benefit that results from a loss from continuing operations. That is, when a company has a current period loss from continuing operations, management must consider income recorded in other categories in determining the tax benefit that is allocated to continuing operations.

The exception in ASC 740 applies in all situations in which there is a loss from continuing operations and income from other items outside of continuing operations. This would include situations in which a company has recorded a full valuation allowance at the beginning and end of the period, and the overall tax provision for the year is zero (i.e., a benefit would be recognized in continuing operations even though the loss from continuing operations does not provide a current year incremental tax benefit). The ASC 740 exception, however, only relates to the allocation of the current year tax provision (which may be zero) and does not change a company’s overall tax provision. While intra-period tax allocation in general does not change the overall tax provision, it may result in a gross-up of the individual components, thereby changing the amount of tax provision included in each category.

The amount of unrecognized tax benefits, including interest and penalties, at October 31, 2016 , recorded in other long-term liabilities was $0.1 million , all of which would impact the Company’s effective tax rate if recognized. The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense, with $1.5 thousand included in expense for the current quarter. The amount of accrued interest and penalties at October 31, 2016 associated with unrecognized tax benefits was $48.7 thousand .

The Company files income tax returns in U.S. federal and state jurisdictions. The IRS began an audit of the fiscal year ended January 31, 2015 in August 2016 and it is in process.

Long-lived assets. The Company evaluates long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. A factor considered important that could trigger an impairment review includes a year-to-date loss from operations. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. Piping Systems has a year-to-date loss. Based on the Company's review there was no impairment of long-lived assets as of October 31, 2016 and January 31, 2016 .

Goodwill. Goodwill represents the excess of purchase price over the fair value of the net assets acquired in conjunction with the Company’s acquisition of BPPC. The Company does not amortize goodwill. The Company performs an impairment assessment of goodwill annually, or more frequently if triggering events occur, based on

the estimated fair value of the related reporting unit or intangible asset. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

Other intangible assets with definite lives. The Company owns several patents, including those covering features of its piping and electronic leak detection systems. Patents are capitalized and amortized on a straight-line basis over a period not to exceed the legal lives of the patents. The Company expenses costs incurred to renew or extend the term of intangible assets . Gross patents were $2.61 million and $2.59 million as of October 31, 2016 and January 31, 2016 , respectively. Accumulated amortization was approximately $2.37 million and $2.33 million as of October 31, 2016 and January 31, 2016 , respectively. Future amortizations over the next five years ending January 31 will be $11,500 in 2017 , $43,150 in 2018 , $34,150 in 2019 , $31,150 in 2020 , $24,800 in 2021 , and $98,125 thereafter. Patents are included in other assets in the balance sheet.



	Three Months Ended October 31,				Nine Months Ended October 31,
	2016		2015		2016		2015
Patent amortization expense		$12		$14		$34		$40


8.	Stock-based compensation. The Company has stock-based compensation awards that can be granted to eligible employees, officers or directors.



	Three Months Ended October 31,					Nine Months Ended October 31,
	2016			2015		2016			2015
Stock-based compensation (benefit) expense		($83	)		$87		($367	)		$50
Restricted stock based compensation expense		$151			$79		$819			$337

Stock-based compensation for 2016 was a benefit year-to-date due to cancellations. Most of these cancellations related to former employees from the Company's discontinued operations. The increase in the restricted stock based compensation expense relates to a grant in March 2016 and the conversion of performance restricted stock units to time-based restricted shares. This increase is partially offset by a decrease in management incentive compensation expense.

Stock Options. The fair value of the outstanding option awards was estimated on the grant dates using the Black-Scholes option pricing model.



	Nine Months Ended October 31,
Fair value assumptions	2016	2015
Expected volatility	40.88% - 54.56%	40.88% - 59.39%
Risk free interest rate	.75% - 1.77%	.74% - 1.77%
Dividend yield	none	none
Expected life	5.0 - 5.1 years	4.9 - 5.1 years



Option activity	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 31, 2016	720			$11.38	5.1		$34
Granted	22		7.33
Exercised	(37	)	6.53			37
Expired or forfeited	(131	)	10.98
Outstanding end of period	574		11.62		4.7	352

Exercisable end of period	485			$12.05	4.0		$299



Unvested option activity	Options		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at January 31, 2016	166			$9.51		$—
Granted	22		7.33
Vested	(62	)
Expired or forfeited	(37	)	9.00
Outstanding end of period	89			$9.31		$53

As of October 31, 2016 , there was $0.3 million of total unrecognized compensation expense related to unvested stock options. The expense is expected to be recognized over a period of 2.1 years.

Restricted stock. The following table summarizes restricted stock activity for the year:



Restricted stock activity	Restricted Shares		Weighted Average Grant Price Per Share		Aggregate Intrinsic Value
Outstanding at January 31, 2016	163			$8.60		$1,040
Granted	241		7.26
Issued	(94	)
Forfeited	(2	)	6.92
Outstanding end of period	308			$7.91		$2,466

As of October 31, 2016 , there was $0.7 million of unrecognized compensation expense related to unvested restricted stock granted under the plans. The cost is expected to be recognized over the weighted-average period of 2.7 years .

9. Earnings per share.



	Three Months Ended October 31,		Nine Months Ended October 31,
	2016	2015	2016	2015
Basic weighted average common shares outstanding	7,541	7,290	7,457	7,273
Dilutive effect of equity compensation plans	—	77	—	—
Weighted average common shares outstanding assuming full dilution	7,541	7,367	7,457	7,273

Stock options not included in the computation of diluted earnings per share of common stock because the option exercise prices exceeded the average market prices of the common shares	270	753	336	743

Stock options with an exercise price below the average market price	304	—	238	10

10. Interest expense, net.



	Three Months Ended October 31,						Nine Months Ended October 31,
	2016			2015			2016			2015
Interest expense		$164			$247			$556			$615
Interest income	(52		)	(120		)	(121		)	(405		)
Interest expense, net		$112			$127			$435			$210

11. Debt. Debt totaled $14.1 million at October 31, 2016 , a net decrease of $1.4 million since January 31, 2016 .

Revolving lines North America . On September 24, 2014, the Company entered into a Credit and Security Agreement with a financial institution (as amended, "Credit Agreement"). Under the terms of the Credit Agreement, which matures on September 24, 2018 , the Company can borrow up to a combined $15.0 million in the U.S. and Canada, subject to borrowing base availability from secured domestic and certain Canadian assets, such as accounts receivable and inventory, and other requirements, under a revolving line of credit. The Credit Agreement covenants restrict debt, liens, and investments, and require attainment of specific levels of profitability and cash flows . At October 31, 2016 , the Company was in compliance with loan covenants. The domestic revolving line balance as of October 31, 2016 and January 31, 2016 was included as a current liability in the consolidated balance sheets.

Interest rates vary based on the average availability in the preceding fiscal quarter and are: (a) a margin in effect plus a base rate, if below certain availability limits; or (b) a margin in effect plus the Eurodollar rate for the corresponding interest period. As of October 31, 2016 , the Company had borrowed 6.4 million at 3.5% , 2.28% and 2.95% and had 6.2 million available to it under the revolving line of credit. In addition, $0.3 million of availability was used under the Credit Agreement primarily to support letters of credit to guarantee amounts committed for inventory purchases. Cash required for operations, as needed, is provided by draw downs on the line of credit.

$6.5 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and project completion guarantees. At October 31, 2016 , borrowings under these credit arrangements totaled $0.2 million ; an additional $19.4 million remained unused. The foreign revolving lines balances as of October 31, 2016 and January 31, 2016 were included as current maturities of long-term debt in the consolidated balance sheets.

On February 1, 2016, the Company executed a promissory note in favor of United Pipeline Systems Limited, an affiliate of Aegion, Inc. for $2.0 million . The promissory note was paid on July 28, 2016. In addition, the Company on July 28, 2016 paid off the balance of $2.2 million in previously affiliated debt to Aegion in its Canadian subsidiary which was acquired in the purchase of BPPC.

On July 28, 2016 , the Company borrowed $8.0 million CAD (approximately $6.1 million USD at the prevailing exchange rate on the transaction date) from a bank in Canada under a mortgage note secured by the manufacturing facility located in Alberta, Canada that matures on December 23, 2042 . The interest rate is variable, currently at 4.7% , with monthly payments of $31 thousand CAD (approximately $24 thousand USD) for interest; and monthly payments of $27 thousand CAD (approximately $20 thousand USD) for principal. Principal payments begin January 2018.

12. Fair Value. In relation to the acquisition of BPPC, the Company estimated the fair value of the assets acquired and liabilities assumed at acquisition date. See "Notes to Consolidated Financial Statements Note 3 Acquisition", for a further discussion of this purchase. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are reasonable estimates of their fair value due to their short-term nature. The carrying amount of the Company's short-term debt, revolving line of credit and long-term debt approximate fair value, because the majority of the amounts outstanding accrue interest at variable rates.

The Company held a marketable equity security of approximately $0.1 million at October 31, 2016 , which it classified as available-for-sale and recorded in other non-current assets on the Consolidated Balance Sheet. This security is carried at estimated fair value with unrealized gains and losses reflected in Accumulated Other Comprehensive Income and classified as Level 1 in the fair value hierarchy. The assessment for impairment of marketable equity securities as available-for sale is based on established financial methodologies, including quoted market prices for publicly traded securities. If the Company determines that a loss in the value of the investment is other than temporary, any such losses are recorded in other expense (income), net.


13.	Other accrued liabilities. In the second quarter, the Company recorded a legal settlement accrual of $0.8 million , which is included in other accrued liabilities.

14.

Recent accounting pronouncements . In October 2016, the Financial Accounting Standards Board ("FASB") issued authoritative guidance requiring the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs rather than when transferred to a third party as required under the current guidance. The new guidance is effective for the Company beginning February 1, 2018, with early adoption permitted. The Company is currently assessing the potential impact the guidance will have upon adoption.

In August 2016, the FASB issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new standard provides guidance on eight targeted areas and how they are presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact.

In March 2016, the FASB issued guidance relating to the accounting for share-based payment transactions. This guidance involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classifications of awards as either equity or liabilities and classification on the statement of cash flows. The standard is effective for the Company beginning in its fiscal year 2017, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the effect that this standard will have on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires entities to recognize assets and liabilities for most leases on their balance sheets. It also requires additional qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on the consolidated financial statements and related disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The adoption of ASU 2014-15 is not expected to have an impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This new standard provides for a single comprehensive model and supersedes most current revenue recognition guidance, including industry specific guidance, and provides for enhanced disclosure requirements. The objective of the new guidance is to improve the consistency, comparability and usefulness to users of financial statements. On April 1, 2015, FASB decided to defer the effective date of the new revenue standard by one year. As a result, public entities would apply the new revenue standard for fiscal years, and interim periods within those years, beginning after December 15, 2017. ASU 2014-09 provides for two implementation methods (1) full retrospective application to each prior period or (2) modified retrospective application with the cumulative effect as of the date of adoption. The Company is evaluating the financial statement impacts of the guidance in this ASU and determining which transition method will be utilized.

15. Reclassifications. Reclassifications were made to the prior-year balance sheet to conform to the current-year presentations.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ( " MD&A " )

The statements contained under the caption MD&A and other information contained elsewhere in this quarterly report, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects," "could," "future," "potential," "believes," "plans," "likely" and "probable" or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors, including, but not limited to, those under the heading Item 1A. Risk Factors included in the Company's latest Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Consolidated MFRI, Inc.

MFRI, Inc. is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. The Company's website is www.mfri.com . Since the Piping Systems segment includes large discrete projects, operating results could be negatively impacted in the future as a result of large variations in the level of market demand in reporting periods.

This discussion should be read in conjunction with the consolidated financial statements, including the notes thereto, contained elsewhere in this report.

Piping Systems



	Three Months Ended October 31,								Nine Months Ended October 31,
($ in thousands)	2016	%		2015	%		% Increase (decrease)		2016		%		2015	%		% Increase (decrease)
Net sales	$25,302			$46,950			(46	)%	$71,230				$92,374			(23	)%
Gross profit	3,697	15	%	14,315	30	%	(74	)%	8,669		12	%	19,796	21	%	(56	)%
General and administrative expenses	1,675	7	%	3,291	7	%	(11	)%	6,208		9	%	8,375	9	%	(26	)%
Selling expenses	1,382	5	%	1,303	3	%	6	%	4,236		6	%	3,951	4	%	7	%
Income (loss) from operations	640	3	%	9,721	21	%	(93	)%	(1,775	)	(2	)%	7,470	8	%	(124	)%
Loss on consolidation of joint venture	—			—					(1,620	)			—

Three months ended October 31, 2016 ( " current quarter " ) vs. Three months ended October 31, 2015 ( " prior-year quarter " )

Net sales decreased 46% to $25.3 million in the current quarter from $47.0 million in the prior-year quarter. Various economic factors have substantially reduced demand in the markets the Company serves during this fiscal year and each of the factors continued this quarter. Since the Company serves oil and gas customers, the low price of oil has had a significant dampening effect on infrastructure projects in the Gulf of Mexico, Canada and the Middle East. The continued shrinking of domestic federal and state infrastructure spending, combined with the general recession in the Gulf Cooperation Council region, have combined to weaken demand for district heating and cooling projects. In addition, the Saudi Arabian economy is in a significant recession, which has slowed its Vision 2030 infrastructure projects. In October 2016, the Saudi government placed a $17.5 billion bond issue in part to raise the funds necessary to restart these projects.

Gross margin decreased to 15% of net sales in the current quarter from 30% of net sales in the prior-year quarter. Because volume is down so sharply, project bids are increasingly competitive and intake margins are under pressure. Additionally, with lower throughput, the fixed costs of the Company's capital-intensive production processes have an adverse effect on margin.

General and administrative expenses decreased to $1.7 million from $3.3 million due to staffing reductions and lower management incentive compensation expense.

Selling expenses increased to $1.4 million from $1.3 million due to the addition of the Canadian entity now included.

Nine months ended October 31, 2016 ( " year-to-date " ) vs. Nine months ended October 31, 2015 ( " prior-year year-to-date " )

On December 31, 2015, MFRI entered into a purchase agreement with its joint venture partner Aegion Corporation to acquire the remaining 51% ownership of BPPC, a coating and insulation company in Camrose, Alberta, which acquisition closed on February 4, 2016.

The purchase price was $13.1 million CAD ($9.6 million USD) in cash and debt at closing and is subject to certain post-closing adjustments. The initial accounting for this acquisition is not complete pending detailed analysis of the facts and circumstances that existed as of the acquisition date.

The acquisition has preliminarily resulted in approximately $2.5 million of goodwill. In the first quarter, the Company recorded a one-time non-cash loss of $1.6 million from the consolidation of the joint venture. The

Company incurred legal, professional and other costs related to this acquisition. These one-time costs of $0.2 million were recognized as general and administrative expenses.

For the reasons discussed above in the quarter, net sales decreased 23% to $71.2 million year-to-date from $92.4 million in the prior-year-to-date.

Gross margin decreased to 12% of net sales year-to-date from 21% of net sales in the prior-year-to-date. The resulting lower production levels and absorption of manufacturing costs, as well as unfavorable sales mix resulted in reduced operating profit margins.

General and administrative expenses decreased to $6.2 million from $8.4 million despite a one-time legal settlement of $0.8 million and the addition of the Canadian general and administrative expenses in the period. The decrease was due to staffing reductions and lower management incentive compensation expense and the prior year included a foreign exchange loss of $0.4 million .

Selling expenses increased to $4.2 million from $4.0 million mainly due to the addition of the Canadian activity.

Corporate

Current quarter vs. prior-year quarter

Corporate operating expenses include general and administrative expenses that are not allocated to the segment. General and administrative expenses decreased to $1.7 million in the current quarter from $2.2 million in the prior-year quarter. This decrease was due to reduced staffing and the elimination of temporary staffing costs.

Net interest expense decreased to $112 thousand in the current quarter from $127 thousand in the prior-year quarter due to lower borrowings, both domestic and foreign.

Year-to-date vs. prior-year year-to-date

General and administrative expenses decreased to $5.6 million year-to-date from $6.0 million in the prior-year-to-date. In the first quarter, the Company had a reduction of its workforce and incurred severance expense of $0.3 million.

Net interest expense increased to $0.4 million year-to-date from $0.2 million in the prior-year period. Interest income decreased in India because of a dividend payment made in January 2016 to support the acquisition of BPPC.

Pretax loss from continuing operations

Current quarter vs. prior-year quarter

Pretax loss from continuing operations was $1.1 million in the current quarter versus $7.8 million of income in the prior-year quarter due to:


•	competitive pricing pressure and weak infrastructure spending in district heating and cooling markets


•	reduced volume in oil and gas operations resulting from low oil prices

Year-to-date vs. prior-year year-to-date

Pretax loss from continuing operations was $9.4 million year-to-date versus $1.7 million of income in the prior-year-to-date. The factors contributing to the year-to-date 2016 results were:


•	competitive pricing pressure and weak infrastructure spending in district heating and cooling markets


•	reduced volume in oil and gas operations resulting from low oil prices


•	a non-cash loss of $1.6 million from the consolidation of the joint venture


•	a one-time $0.8 million lawsuit settlement


•	$0.3 million in severance costs


•	increased professional services associated with the changes in the Company's business structure to concentrate on a single line of business.

INCOME TAXES

The Company's effective tax rate ("ETR") from continuing operations for the quarter and year-to-date was a negative 209.8% and 11.4% , respectively, compared to 17.2% and 51.7% during the respective prior-year periods. The October 31, 2016 computation of the projected annual tax rate has been significantly impacted by an increase in the projected loss for the year, especially an increase in the loss attributable to the U.A.E., which receives no tax benefit due to a zero tax rate in that country. Other changes in the ETR from the prior year-to-date to the current year-to-date are due to the Canadian acquisition and the allocation of tax expense between continuing operations, other comprehensive income and discontinued operations when applying intraperiod allocation rules. The Company remains in a domestic NOL carryforward position. For additional information, see "Notes to Consolidated Financial Statements, Note 5 Income taxes".

OTHER

At October 31, 2016 , two customers accounted for 25% of accounts receivable. Two customers accounted for 46% of accounts receivable at January 31, 2016 .

DISCONTINUED OPERATIONS

Prior to January 29, 2016, the Company was also engaged in the manufacture and sale of products in the Filtration Products segment. On January 29, 2016, the Company sold certain assets and liabilities of its TDC Filter business based in Bolingbrook, Illinois and its Nordic Air Filtration, Denmark and Nordic Air Filtration, U.A.E. businesses. The Company liquidated the remaining assets of the Filtration bag business in Winchester, Virginia. The Filtration business segment is reported as discontinued operations in the consolidated financial statements, and the notes to consolidated financial statements have been revised to conform to the current year reporting. There was $0.6 million of tax expense for the nine months ended October 31, 2016 . For further information, see "Notes to Consolidated Financial Statements, Note 4 Discontinued operations".

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of October 31, 2016 were $9.0 million compared to $16.6 million at January 31, 2016 . At October 31, 2016 , $0.4 million was held in the U.S., and $8.6 million was held at the foreign subsidiaries. The Company's working capital was $29.1 million on October 31, 2016 compared to $31.8 million on January 31, 2016 . Of the working capital components, accounts receivable decreased $5.7 million, inventory decreased $1.3 million and accounts payable decreased $3.5 million. Net cash used in operating activities during the first nine months of 2016 was $4.8 million compared to $9.8 million during the first nine months of 2015 .

During the quarter, the Company paid out $1.8 million under its terminated deferred compensation plans. The Company has paid $5.0 million year-to-date under its terminated deferred compensation plans. $1.9 million of these payments were funded by the liquidation of life insurance contracts previously purchased by the Company.

The Company has not provided for Federal tax on unremitted earnings of its Middle East subsidiaries. The Company does not believe that it will be necessary to repatriate investments from these subsidiaries.

Net cash provided by investing activities for the nine months ended October 31, 2016 was $9.6 million of which $14.0 million was from the proceeds of several sales discussed below, partially offset by $4.7 million related to the acquisition of BPPC.

In September 2016, the Company completed the sale of its Cicero Filtration facility to a third party at a price of $0.5 million . The sale generated approximately $0.4 million in cash after expenses.

In October 2016, the Company completed the sale of its Virginia Filtration facility to a third party at a price of $1.5 million . The sale generated approximately $1.4 million in cash after expenses.

In May 2016, the Company completed the sale of its former corporate headquarters, land and building, to a third party at a purchase price of $4.4 million. The sale generated approximately $0.4 million in cash after expenses and mortgage payoff.

In May 2016, the Company also completed the sale of its Bolingbrook Filtration facility to a third party at a purchase price of $7.1 million. The sale generated approximately $1.9 million in cash after expenses and mortgage payoff.

Debt totaled $14.1 million at October 31, 2016 , a net decrease of $1.4 million compared to the beginning of the current fiscal year. For additional information, see "Notes to Consolidated Financial Statements, Note 11 Debt". Net cash used in financing activities was $12.2 million for the nine months ended October 31, 2016 .

On September 24, 2014, the Company entered into a Credit and Security Agreement with a financial institution (as amended, "Credit Agreement"). Under the terms of the Credit Agreement, which matures on September 24, 2018 , the Company can borrow up to a combined $15.0 million in the U.S. and Canada, subject to borrowing base availability from secured domestic and certain Canadian assets, such as accounts receivable and inventory, and other requirements, under a revolving line of credit. The Credit Agreement covenants restrict debt, liens, and investments, and require attainment of specific levels of profitability and cash flows . At October 31, 2016 , the Company was in compliance with loan covenants. The domestic revolving line balance as of October 31, 2016 and January 31, 2016 was included as a current liability in the consolidated balance sheets.

Revolving lines foreign . The Company also had credit arrangements used by its Middle Eastern subsidiaries. These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates. The lines of credit are secured by certain equipment, certain assets, such as accounts receivable and inventory, and a guarantee by the Company. The Company's credit arrangement covenants requires a minimum tangible net worth to be maintained. At October 31, 2016 , the Company was in compliance with the covenants under the credit arrangements. At October 31, 2016 , interest rates were 4.0% per annum below National Bank of Fujairah Base Rate, minimum 3.5% per annum, and Emirates Inter Bank Offered Rate (EIBOR) plus 3.5% per annum. At October 31, 2016 , the Company's interest rates range from 3.5% to 6.0%. At October 31, 2016 , the Company had available borrowing capacity of $26.0 million under these credit arrangements. In addition, $6.5 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and project completion guarantees. At October 31, 2016 , borrowings under these credit arrangements totaled $0.2 million ; an additional $19.4 million remained unused. The foreign revolving lines balances as of October 31, 2016 and January 31, 2016 were included as current maturities of long-term debt in the consolidated balance sheets.

The Company believes its current cash and cash flow from operations, together with borrowing capacity under the revolving credit facilities, will be sufficient to fund anticipated operations, working capital and capital spending needs for at least the next 12 months.

On February 1, 2016, the Company executed a promissory note in favor of United Pipeline Systems Limited, an affiliate of Aegion, Inc. for $2.0 million . The promissory note was paid on July 28, 2016 . In addition, the Company July 28, 2016 paid off the balance of $2.2 million in previously affiliated debt to Aegion in its Canadian subsidiary which was acquired in the purchase of BPPC.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are described in Item 7. MD&A and in the Notes to the Consolidated Financial Statements for the year ended January 31, 2016 contained in the Company's most recent Annual Report on Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of critical accounting policies may require management to make assumptions, judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

Item 4. Controls and Procedures

The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of October 31, 2016 . The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of October 31, 2016. This evaluation included consideration of the controls, processes, and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the Company's disclosure controls and procedures were effective as of October 31, 2016.

Previously Disclosed Delinquent Filing Status

Management has previously reported on a material weakness in our internal control, which resulted in a failure to timely file a current report on Form 8-K, leading management to conclude that disclosure controls and procedures were not effective as of January 31, 2016. During the quarter ending October 31, 2016 the Company cured its delinquent filing status through issuance of a Form 8-K/A containing the audited historical financial statements of its acquiree, Bayou Perma-Pipe Canada Ltd.

PART II OTHER INFORMATION

Item 6. Exhibits



10.1	Executive Employment Agreement by and between MFRI, Inc. and David Mansfield dated as of October 19, 2016
31	Rule 13a - 14(a)/15d - 14(a) Certifications (1) Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Section 1350 Certifications (Chief Executive Officer and Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
101.INS	XBRL Instance
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation
101.DEF	XBRL Taxonomy Extension Definition
101.LAB	XBRL Taxonomy Extension Labels
101.PRE	XBRL Taxonomy Extension Presentation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MFRI, INC.



Date:	December 13, 2016	/s/ David J. Mansfield
		David J. Mansfield
		President and Chief Executive Officer
		(Principal Executive Officer)


Date:	December 13, 2016	/s/ Karl J. Schmidt
		Karl J. Schmidt
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 10.1

Executive Employment Agreement

This Employment Agreement is entered into as of the date of the last signature affixed hereto, by and between MFRI, Inc., a Delaware corporation ("MFRI" or "the Company"), and David J. Mansfield ("Employee").

In consideration of the mutual promises and covenants set forth herein, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, MFRI and Employee hereby agree as follows:

Position of Employment, The Company will appoint the Employee to the position of President and CEO, MFRI, Inc. on November 8, 2016 and, in that position, Employee will report to the Board of Directors of MFRI. MFRI retains the right to change Employee's title, duties, and reporting relationships as may be determined to be in the best interests of the Company; provided, however, that any such change in Employee's duties shall be consistent with Employee's training, experience, and qualifications.

The terms and conditions of the Employee's employment shall. to the extent not addressed or described in this Employment Agreement, be governed by MFRI Company's Policies and Procedures and existing practices. In the event of a conflict between this Employment Agreement and the Policies and Procedures or existing practices, the terms of this Agreement shall govern.


2.	Term of Employment. Employee's employment with MFRI shall begin on November 8, 2016, the date of appointment to CEO, and shall continue for a period of three (3) years, and then automatically renew annually for successive one year terms unless either party gives the other party notice otherwise at least 180 days before the end of the initial term or a renewal period:


a.	Employee's employment is terminated by either party in accordance with the terms of section 5 of this Employment Agreement; or


b.	such term of employment is extended or shortened by a subsequent agreement duly executed by each of the parties to this Employment Agreement, in which case such employment shall be subject to the terms and conditions contained in the subsequent written agreement.


3.	Compensation and Benefits.

Base salary. Employee shall be paid a base salary of no less than $13,076.92 bi-weekly, which is $340,000 annually ("Base salary"), subject to applicable federal. state, and local withholding, such Base salary to be paid to Employee in the same manner and on the same payroll schedule in which all exempt MFRI employees receive payment. Salary will be reviewed annually and adjusted by the Board of Directors based on performance and external benchmarking of market compensation for equivalent positions. Timing of any adjustments will be aligned to overall Corporate annual salary review.

Incentive Compensation. Employee shall be eligible to participate in all incentive compensation programs available to other executives or officers of MFRI, such participation to be in the same form, under the same general terms, and to the same extent that such programs are made available to other such executives or officers. Nothing in this Employment Agreement shall be deemed to require the payment of bonuses, awards, or incentive compensation to Employee if such payment would not otherwise be required under the terms of MFRI Company's incentive compensation programs.

Short Term Incentive (STI). Employee will receive short Term Incentive in the form of an annual cash bonus opportunity with a target incentive set at 80% of base salary. Performance measures applicable to STI will be based on objective Company Performance Metrics aligned to financial and strategic plans approved by the Board. Bonus payment award and timing will align with Corporate annual bonus payouts following completion of annual financial calendar. For the first fiscal year, bonus eligibility will be pro-rata for portion of the fiscal year worked and based on part

year metrics for the same time period with payout to be at no less than 50% of pro-rata target amount.

Long Term Incentive (LTI). Employee will receive Long Term Incentive in the form of Restricted Stock Units (RSU) with a target annual award of 1.5 time's base salary. These RSUs will vest over a 3-year period, with 1/3 vesting at the end of each anniversary of the grant. The actual award may be adjusted up or down based on compensation benchmarking and/or performance as determined in goes faith by the Board. The Board reserves the right to amend the program as deemed necessary.


d.	Sign on Bonus. Employee will receive a sign on bonus of $100,000 in the form of RSUs at starting date. These RSUs will vest in full one (1) year from the issue date,

Employee Benefits. Employee shall be eligible to participate in all employee benefit plans, policies, programs, or perquisites in which other MFRI's executive or officers participate. The terms and conditions of Employee's participation in MFRI employee benefit plans, policies, programs, or perquisites shall be governed by the terms of each such plan, polices or program. Complete details of the plans including Health, Dental and Retirement are available upon request.


f.	Vacation. Employee will be entitled to 4 weeks of paid vacation annually.

Duties and Performance. The Employee acknowledges and agrees that he is being offered a position of employment by MFRI with the understanding that the Employee possesses a unique set of skills, abilities, and experiences which will benefit the Company, and he agrees that his continued employment with the Company. whether during the term of this Employment Agreement or thereafter, is contingent upon his successful performance of his duties in his position as noted above, or in such other position to which he may be assigned.


a.	General Duties.


1.	Employee shall render to the very best of Employee's ability, on behalf of the Company, services to and on behalf of the Company, and shall undertake diligently all duties assigned to him by the Company.

Employee shall devote his full time, energy and skill to the performance of the services in which the Company is engaged at such time and place as the Company may direct. Employee shall not undertake, either as an owner. director, shareholder, employee or otherwise, the performance of services for compensation (actual or expected) for any other entity without the express written concert of the Board of Directors


3.	Employee shall faithfully and industriously assume and perform with skill, care, diligence and attention all responsibilities and duties connected with his employment on behalf of the Company.


4.	Employee shall have no authority to enter into any contracts binding upon the Company, or to deliberately create any obligations on the part of the Company, except as may be specifically authorized by the Board of Directors of MFRI.

Specific Duties.


1.	Festering a Company with underlying values in safety, integrity and ethics.


2.	Developing and meeting quarterly and annual operating targets.


3.	Establishing a high performance, results driven culture that meets or exceeds commitments.


4.	Creating a high performance, collaborative, hands on leadership team.


5.	Ensuring a process is in place which provides robust sales and marketing plans and forecasts.


6.	Ensuring a system ls in place which drives operational excellence and continuous improvement.


7.	Be able to prioritize the best growth and investment strategies to pursue given limited resources.


8.	Provide visibility and strong communication skills to internal and external stakeholders.


9.	Establish a credible succession plan and talent development process throughout the organization.


5.	Termination of Employment. Employee's employment with the Company may be terminated, prior to the expiration of the tern of this Employment Agreement, in accordance with any of the following provisions:

a. Termination by Employee. The Employee may terminate his employment at any time during the course of this agreement by giving four (4) weeks' notice in writing to the Chairman of the Board of MFRI. During the notice period, Employee must fulfill all his duties and responsibilities set forth above and use his best efforts to train and support his replacement, if any. Failure to comply with this requirement may result in Termination for Cause described below, but otherwise Employee`s salary and benefits will remain unchanged during the notification period.

b. Termination by the Company Without Cause, MFRI may terminate Employee's employment at any time during the course of this agreement by giving four (4) weeks' notice in writing to the Employee. During the notice period, Employee must fulfill all of Employee's duties and responsibilities set forth above and use Employee`s best efforts to train and support Employee's replacement if any, Failure of Employee to comply with this requirement may result in Termination for Cause described below, but otherwise Employee's salary and benefits will remain unchanged during the notification period. should termination occur within the first year of employment, Employee will receive six (6) months of severance and retain all rights to vested stock and/or options, any unvested portion of the sign on Bonus will fully vest and any other unvested shares will be forfeited except that shares due to vest in the current year will vest pro rata for the number of months worked for that year. After Employee completes One (1) year of employment. Employee will receive the above and twelve (12) months of severance (instead of six).

c. Termination by Employee for Good Reason. Employee may terminate his employment with the Company for Good Reason by giving four (4) weeks' notice in writing to the Company. During the notice period, if requested by the Company, Employee must fulfill all of Employee's duties and responsibilities set forth above and use Employee's best efforts to train and support Employee's replacement, if any. Failure of Employee to comply with this requirement may result in Termination for Cause described below( but otherwise Employee's salary and benefits will remain unchanged during the notification period should Company fail to cure Employee's stated Good Reason during the notice period and termination for Good Reason occurs within the first year of employment. Employee will receive six (6) months of severance and retain all rights to vested stock and/or options, any unvested portion of the Sign-on Bonus will fully vest, and any Other unvested shares will be forfeited except that shares due to vest in the current year will vest pro-rata based on the number of months Employee was employed during that year. After Employee completes one (1) year of employment, Employee will receive the above and twelve (12) months of severance (instead of six). Good Reason means only material diminution in Employee's Base salary or substantial changes by the Company affecting the Employee's eligibility for STI, or duties, responsibilities, reporting or authority as outlined in this Agreement.

d. Termination by the Company for Cause. The Company may, at any time and without notice, terminate the Employee for "cause". Termination by the Company of the Employee for "cause" shall include but not be limited to termination based on any of the following grounds: (a) repeated failure to perform the duties of the Employee's position in a satisfactory manner which remains uncured after Employee is give notice of same and a reasonable opportunity to cure; (b) fraud, misappropriation, embezzlement or acts of similar dishonesty; (c) conviction of a felony involving moral turpitude: (d) illegal use of drugs or excessive use of alcohol in the workplace; (e) intentional and willful misconduct that may subject the Company to criminal or civil liability; (f) breach of the Employee's duty of loyalty, including the diversion or usurpation of corporate opportunities properly belonging to the Company: (g) willful disregard of Company policies and procedures; (h) breach of ally of the material terms of this Agreement; and (i) insubordination or deliberate refusal to follow the lawful instructions of the Board of Directors of MFRI Termination for Cause will result in immediate termination, no severance, and unvested stock forfeited.

e. Termination by Death or Disability. The Employee's employment and rights to compensation under this Employment Agreement shall terminate if the Employee is unable to perform the duties of his position due to death, or disability lasting more than 90 days taking into consideration the accommodation obligations under the Americans with Disabilities Act or parallel

state law based on the applicable facts of any such disability, and the Employee's heirs, beneficiaries, successors, or assigns shall not be entitled to any of the compensation or benefits to which Employee ls entitled under this Agreement, except: (a) to the extent specifically provided in this Employment Agreement (b) to the extent required by law; or (c) to the extent that such benefit plans or policies under which Employee is covered provide a benefit to the Employee's heirs, beneficiaries, successors, or assigns.

f. Severance. Severance means a payment equal to Employee's Base salary plus STl at target payout pro-rated, if necessary, for the severance period, plus continuation of group health and welfare benefits via COBRA for the for the severance period. Severance will be paid in equal installments for the length of the severance period, beginning thirty days after Employee signs the release of claims referenced below.

g. Release. Any post termination severance or benefits are subject to Employee signing a release of claims prior to receipt

h. Change in Control (CIC). In the event of a CIC, Employee will have accelerated vesting of all shares. If Employee's employment is terminated by the Company without Cause or by Employee for Good Reason during the six (6) months before a CIC that was initiated prior to Employee departure and completed within twelve (12) months after Employee departure, Employee will receive accelerated vesting of all restricted shares awarded to Employee prior to termination and twelve (12) months of severance. CIC ls triggered by change in ownership or a sale of all of the Company's assets and resulting material diminution of Employee's duties. For purposes of determining whether a CIC has occurred, Company shall mean only MFRI, Inc.


6.	Confidentiality. To the fullest extent permitted by applicable law, the terms of the Confidentiality Agreement executed by the Employee are incorporated by reference into this Employment Agreement and are made a part hereto as if they appeared in this Employment Agreement itself. This agreement will extend for the duration of the severance period.


7.	Non-solicitation/Non-compete. To the fullest extent permitted by applicable law, the terms of the Non-solicitation/Non-Compete Agreement executed by the Employee are incorporated by reference into this Employment Agreement and are made a part hereto as if they appeared in this Employment Agreement itself. This agreement will extend for the duration of the severance period.

Assignment of Inventions, Improvements and Developments. The Employee hereby assigns and agrees to assign to the Company the entire worldwide right, in all inventions, improvements and developments, patentable or unpatentable, which, during his employment by the Company he shall have made or conceived or hereafter may make or conceive, either solely or jointly with others (a) with the use of the Company's time, equipment, materials, supplies, facilities, or trade secrets or confidential business information or (b) resulting from or suggested by his work for the Company or (c) contemplated business of the Company, including, but limited to, preinsulated and/or secondarily contained piping systems for district heating and cooling systems, oil and gas flow lines, chemical transportation and related products and materials. All such inventions, improvements and developments shall automatically and immediately be deemed to be the property of the Company as soon as made or conceived. This assignment includes all rights to sue for all infringements, including those which may have occurred before this assignment. It is understood that this Agreement does not apply to an invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Employee's own time. The invention related (i) to the business of the Company or (ii) to the Company's actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the Employee for the Company.


9.	Disclosure, Employee agrees to disclose promptly to the Company all such inventions, improvements and developments when made or conceived, Upon termination of his employment for any reason, Employee shall immediately give lo the Company all written records of such inventions, improvements and developments and make all full disclosures thereof, whether or not they have been reduced to writing.

Aid and Assistance. The Employee agrees, (a) to execute all documents necessary to protect inventions, improvement and developments assigned pursuant to section 8, and to obtain, maintain, modify, or enforce any United States or foreign patent on such invention, improvements or developments; and (b) to cooperate

with the Company in every reasonable way possible in obtaining evidence for use in any such proceedings to obtain, maintain, modify or enforce any such paten. Employee agrees that he shall not receive any additional compensation, other than reimbursement for reasonable costs and expenses incurred by him, in complying with the terms of this section 10.

10.

Temporary and/or Permanent Relocation. Employee will be based in The Woodlands, Texas. However Employee understands the Company headquarters are in Chicago, IL and he will need to spend substantial time working from the Chicago office. As such, unless and until Employee becomes based in the Company's Illinois office, Company will cover all reasonable expenses, per the Company's policies, for travel between Houston and Chicago for Company business activities for up to one year; including lodging, living and transportation costs incurred while working away from home. This timeframe maybe extended upon approval of the Board. Decision on hotel vs. apartment and car lease vs. rental will be decided based on what is most cost effective. If Employee relocates to Illinois in the future, the Company will pay for relocation expenses separately.

11.

Parachute Payment Limitation . Notwithstanding any contrary provision above, if Employee is a " disqualified individual " (as defined in section 280G of the Internal Revenue Code), and the CIC Benefits, together with any other payments which the Employee has the right to receive from the Company, would constitute a " parachute payment " (as defined in section 280G of the Code), the payments and benefits provided under this Agreement shall be either (i) reduced (but not below zero) so that the aggregate present value of such payments and benefits received by the Employee from the Company shall be $1.00 less than three times Employee's "base amount" (as defined in section 280G of the Code) and so that no portion of such payments received by Employee shalt be subject to the excise tax imposed by section 4999 of the Code, or (ii) paid in full, whichever produces the better net after-tax result for Employee (taking into account any applicable excise fax under section 4999 of the Code and any applicable income tax). If a reduced payment is made [o Employee pursuant to clause (i) above and through error or otherwise that payment, when aggregated with other payments from the Company used in determining if a parachute payment exists, exceeds $1.00 less than three times Employee's base amount, Employee must immediately repay such excess to the Company upon notification that an overpayment has been made.

12.

Indemnification and Insurance. The Company will defend. indemnify and hold Employee, his heir & executors and administrators harmless against and in respect of any and all damages, losses, obligations, liabilities, claims, deficiencies, costs and expenses (including, but not limited to, attorneys' fees and other costs and expenses incident to any suit, action, investigation, claim or proceeding) suffered, sustained, incurred or required to be paid by Employee by reason of or on account of Employee's performance of work on behalf of the Company, except to the extent due to any act or omission by Employee that constitutes a breach of this Agreement or is outside the scope of his authority under this Agreement. In addition, the Company will maintain directors and officer's liability insurance in place, with reasonable and customary limits, pursuant to whisk Employee shall be a named, additional or covered insured.


13.	General Provisions.

Notices. All notices and other communications required or permitted try this Agreement to be delivered by MFRI or Employee to the other party shall be delivered in writing to the address shown below, either personally, or by registered, certified or express mail, return receipt requested, postage prepaid, to the address for such party specified below or to such other address as the party may from time to time and advise the other party, and shall be deemed given and received as of actual personal delivery, or upon the date or actual receipt shown on any return receipt if registered, certified or express mail is used, as the case may be.

MFR, Inc.

6410 W. Howard Street

Niles, IL. 60714

Attention: Chairman of the Board

David J. Mansfield

119 Wind Ridge Circle

The Woodlands, TX 77381


b.	Amendments and Termination; Entire Agreement This Agreement may not be amended or terminated except by a writing executed by all of the parties hereto. This Agreement constitutes the entire agreement of MFRI and Employee relating to the subject matter hereof and supersedes all prior oral and written understandings and agreements relating to such subject matter.

Successors and Assigns. The rights and obligations of the parties hereunder are not assignable to another person without prior written consent; provided, however, that MFRI, without obtaining Employee's consent, may assign its rights and obligations hereunder to a wholly owned subsidiary and provided further that any post-employment restrictions shall be assignable by MFRI to any entity which purchases all or substantially all of the Company's assets.

Severability Provisions subject to Applicable Law. All provisions of this Agreement shall be applicable only to the extent that they do not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Agreement invalid, illegal or unenforceable under any applicable law. If any provision of this Agreement or any application thereof shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of other provisions of this Agreement or of any other application of such provision shall in no way be affected thereby.


e.	Waiver of Rights. No waiver by MFRI or Employee of a right or remedy hereunder shall be deemed to be a waiver of any other right or remedy or of ally subsequent right or remedy of the same kind.

Definitions, Headings, and Number. A term defined in any part of this Employment Agreement shall have the defined meaning wherever such term is used herein. The headings contained in this Agreement are for reference purposes only and shall not affect in any manner the meaning or interpretation of this Employment Agreement. Where appropriate to the context of this Agreement, use of the singular shall be deemed also to refer to the plural, and use of the plural to the singular.


g.	Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original but both of which taken together shall constitute but one and the same instrument.


h.	Governing Laws and Forum, This Agreement shall be governed by construed, and enforced in accordance with the laws of the Commonwealth of Delaware. The parties hereto further agree that any action brought to enforce any right or obligation under this Agreement shall be subject to the exclusive jurisdiction of the courts of the Commonwealth of Delaware.

IN WITNESS WHEREOF, MFRI and Employee have executed and delivered this Agreement as of the date written below.



		MFRI, Inc.
/s/ David J. Mansfield	October 19, 2016	By: /s/ Jerome Walker
David J. Mansfield		Name: Jerome Walker
		Title: Director, Chairman of the Compensation Committee
		Date: October 19, 2016

Exhibit 31.1

I, David J. Mansfield, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of MFRI, Inc.


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with the respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	December 13, 2016

/ s/ David J. Mansfield

David J. Mansfield

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

I, Karl J. Schmidt, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of MFRI, Inc.


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with the respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	December 13, 2016

/ s/ Karl J. Schmidt

Karl J. Schmidt

Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

Exhibit 32

Certification of Principal Executive Officers

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

The undersigned in their capacities as Chief Executive Officer and Chief Financial Officer of MFRI, Inc. (the “Registrant’), certify that, to the best of their knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended October 31, 2016 of the Registrant, (the “Report”):

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/ s/ David J. Mansfield

David J. Mansfield

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Karl J. Schmidt

Karl J. Schmidt

Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

December 13, 2016

A signed original of this written statement required by Section 906 has been provided by MFRI, Inc. and will be retained by MFRI, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.